Moneyweek article: Should you always accept a pay rise?

Turning down a pay rise purely to avoid tax is usually the wrong move. You do not become poorer because you crossed into a higher tax band; you simply pay the higher rate on the slice above the threshold.

The real issue is the tax traps. Around £100,000, for example, the gradual loss of the Personal Allowance can create an effective 60% income-tax rate on part of your earnings. That is where planning matters.

Rather than saying no to progression, look at salary sacrifice, pension contributions and how bonuses are structured. Sometimes redirecting part of a bonus into a pension can reduce adjusted net income while still building your wealth.

Fiscal drag is absolutely pulling more people into uncomfortable tax territory. But the answer should be smarter planning, not becoming scared of earning more.

Never let the tax tail wag the career dog.

If this becomes a "thing", Burnham can kiss goodbye to growth in every postcode target he cares about. This government needs to understand you cannot tax your way to prosperity. The thought of someone actively turning down a raise or promotion because of fiscal drag is a huge anchor on the economy, utter madness for the country, the employee and the employer. So how do you progress from there? Under the current tax system, workers can still accept the increase and use tax-efficient strategies to manage their taxable base: salary sacrifice into pensions preserves benefits while boosting retirement savings, and pre-tax benefit schemes, buying annual leave, spousal allowances and Gift Aid all help too. Then we just wait for a government that actually understands economics to get elected.

I'll leave the tax mechanics to the planners and accountants, that's their expertise, not mine. But from where I sit, turning down a pay rise to sidestep a tax band is usually the wrong lens. A higher income underpins far more than this year's tax bill. It's the foundation your mortgage, your protection and your longer-term borrowing all sit on. On the mortgage side specifically, more income almost always works in your favour: it lifts what you can borrow and can open up better rates. There's one caveat worth knowing. Lenders often assess affordability on your gross salary, so a rise can flatter your borrowing power even where your take-home hasn't gone up by as much. That's fine, as long as you don't let a bigger number on the calculator tempt you into stretching past what your monthly budget can handle. So rather than refusing the rise, take it, then get proper advice on how to hold onto more of it. Declining more money is rarely the smart move. Managing it better usually is.

“Turning down a pay rise to save tax is a worrying sign that the tax system is starting to distort people’s behaviour.” Fiscal drag is pulling more workers into higher rates, but the real problem is the growing number of tax traps and cliff edges. Between £60,000 and £80,000, Child Benefit can be clawed back; above £100,000, the personal allowance is gradually lost, creating an effective 60% income-tax rate on earnings up to £125,140. For parents, crossing £100,000 can be even more painful because valuable childcare support can disappear completely. Pension contributions can reduce adjusted net income while building wealth for retirement, and charitable Gift Aid can also help. The answer is planning, not earning less. When workers genuinely consider refusing career progression because of tax, policymakers should be asking whether the tax system itself has become part of the problem

Turning down a pay rise purely because of tax is often short-sighted. The starting point should be to understand which tax thresholds you are crossing and whether you can plan around them. Increasing pension contributions through salary sacrifice, where available, or making charitable donations can reduce taxable income while allowing you to benefit from the pay rise and bolster long-term finances. This can be particularly valuable around the Child Benefit charge, £100,000 childcare threshold and loss of the personal allowance. Bonus sacrifice or adjusting the timing of remuneration may also help. The key is understanding your individual circumstances and not allowing the tax tail to wag the salary and investment dog.

The level I see the most confusion at refusing a pay rise is the £100k mark and this is normally mainly due to losing the funded childcare hours if net adjusted income goes over £100k. There isn’t enough education or awareness around what can lower net adjusted income and so I see people refusing pay rises at this level because the potential loss of funded childcare hours can be up to £9000 a year and combined with the loss of the personal allowance, an effective marginal rate of tax or 62% including national insurance. There are ways to reduce net adjusted income such as salary sacrifice, pension contributions, gift aid but it’s not widely known.

Refusing a pay rise to dodge tax is like refusing a bigger dinner because you'll have more washing up. Nobody here takes home less by earning more. You keep less of the extra, not less overall. The thing workers should be angry about is the freeze. Thresholds stuck since 2021 while prices ran away. That is the quiet part, a government carrying this much debt never has to stand up and announce a tax rise, because inflation and frozen bands do the collecting on its behalf. So that 'rise' often isn't one. It's you standing still and paying more for the privilege. Turning it down means going backwards on purpose.

If workers really are turning down pay rises over tax, they are almost always making themselves poorer for nothing. A higher rate bites only on the slice above the threshold, so paying more tax and taking home less are not the same thing. Cutting the tax bill is the wrong objective, because refusing a rise keeps it down perfectly well and usually still leaves less in your hand. A better answer is pension salary sacrifice, which cuts taxable pay. There is a narrow exception, and even it isn't a reason to refuse. Tax-Free Childcare and England's funded hours for working parents both stop once a parent expects their adjusted net income to go over £100,000. Above that line the personal allowance tapers away, but that childcare stops. Gross pension contributions come off adjusted net income. Even then, paying enough in to bring the expected figure under the line keeps that childcare. Take the money and move it. Don't turn it down.